Alpha says Massey site safety slow to improve

CHARLESTON, W.Va. --Alpha Natural Resources officials said Thursday it's going to take more time for them to clean up poor safety practices at Massey Energy operations it purchased five months ago.

Alpha CEO Kevin Crutchfield said his company has conducted 55,000 hours of employee training classes on its "Running Right" safety philosophy, giving up several hundred thousand tons of coal production in the process.

"We think it's a worthwhile investment," Crutchfield said. "It's kind of a table-setting exercise that we've focused very heavily on here in the first few months."

But Crutchfield said Alpha so far couldn't point to major improvements in safety compliance, though it believes violations, accidents and injuries are on the way down at the former Massey mines it now manages.

"That's going to take some time," Crutchfield said. "You can't turn this thing on a dime."

Crutchfield made his comments during a conference call with industry stock analysts following Alpha's release of its first financial report to include a full quarter of results since the Massey acquisition.

Alpha reported that its net income over the last three months roughly doubled, to $66.4 million, over the third quarter of 2010.

Much of the change is attributable to the Massey deal. Alpha reported $2 billion in coal revenues, compared to $900 million in coal revenues during the same period last year. This year, the third quarter results included more than $800 in coal revenues from former Massey mines, Alpha said.

During the quarter, Alpha shipped 12.6 million tons of coal from the Powder River Basin of Wyoming and 12.7 million tons of electricity-producing coal from the east, including 7 million tons from former Massey operations. Alpha also shipped 5.9 million tons of steel-making coal, including 2.1 million tons from former Massey mines.

Crutchfield said Alpha is optimistic about the future, despite a boom in natural gas drilling that is cutting into coal's market share and Obama administration pollution rules Alpha agrees are making it tough on the industry.

"Clearly, the current administration through their regulatory approach is focused on picking winners and losers, and they certainly don't want coal to win," Crutchfield said.

But Crutchfield also said Alpha has no immediate concerns about new surface mining permits it needs being held up, even though one new Alpha mine is facing litigation in federal court from environmental groups.

"We feel pretty good about what we have permitted so far," Crutchfield said. "There's nothing in 2012 that is contingent upon any sort of regulatory relaxation or need."

On Wednesday, U.S. Rep. George Miller, D-Calif., and ranking minority member of the labor committee, questioned Alpha's safety commitment during a floor speech, saying the company had shown "some troubling contradictions that merit a careful watch."

In its earnings press release, Alpha said employee feedback from training at former Massey operations was "overwhelmingly positive," that worker turnover was down and that "incident rates at the legacy Massey operations are declining."

Crutchfield said that Alpha generally has recorded a federal safety violation rate of 0.5 to 0.6 violations per inspection day, while prior to the acquisition, Massey operations recorded a rate of 0.8 to 1.0 violations per inspection day.

Massey's safety record was a major issue for many years, and recent reports on the deaths of 29 miners in the April 2010 Upper Big Branch Mine Disaster highlighted repeated violations, efforts to obstruct government inspectors, and practices investigators said clearly put coal production ahead of worker safety and health.

During initial comments to analysts, Crutchfield said that year-to-date incident rate for former Massey operations had decreased by more than 13 percent compared to 2010.

Asked by industry analysts for additional figures to show what sort of improvement has been made at Massey mines since the transaction, Alpha officials hedged. They said they couldn't point to any major changes in compliance rates, but were seeing a significant decline in more serious enforcement actions by the U.S. Mine Safety and Health Administration.

"We haven't seen a significant decrease in our violations per inspection day," said Kurt Kost, Alpha's president. "The main metric that we're focusing on right now, obviously, is the injury rate and that rate is definitely trending in the proper direction. "

Crutchfield specifically declined to provide figures on the performance of two former Massey mines - Randolph and Justice No. 1 - that face potential "pattern of violations" enforcement orders from MSHA.

While emphasizing his company's commitment to reducing violations and operating safely, Crutchfield has said Alpha opposes new legislation that would toughen penalties for operators convicted of criminal mine safety violations.

Alpha has also said it would challenge the pattern of violations warnings MSHA issued to the Randolph and Justice operations.

"If people will think back, I always said that MSHA wasn't going to cut us any slack, and they didn't," Crutchfield said. "MSHA is going to do what they think is right, and we're going to demonstrate that we know how to run these operations and we know how to run them in compliance.

"I think MSHA has a fair degree of respect for Alpha," Crutchfield said. "We're going to make their job easier in some ways, but harder in others. They're going to have to look harder to find something to write."